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- [00:00]
A
Hello everyone and welcome to Investing by the Books, a podcast by Redeye. I'm your host, Eri Palmgen and this time I'm just back in the studio in Sweden from a couple of weeks traveling around Europe. Fittingly enough, this episode will be about an adventurous journey in Europe that took place almost a hundred years ago. In this podcast we like to learn from multiple disciplines how to think, live and invest better. And a great way to do this is to talk to people, bright investors, about books that has helped them. And so far these have often not been the typical investing books. And that is also the case this time. Today we look forward to have Ryan Floyd on the show. Ryan is a US based investor that frequently has traveled to places like Africa and Asia to explore unusual investment opportunities. We got in touch thanks to Red Eye's work with Serial Choirs. And when Ryan suggested us to talk about the book A Time of Gifts, I jumped at the opportunity. A Time of Gifts was written by Patrick Lee Farmer and depicts his journey on foot as an 18 year old Englishman walking through Europe in 1933 and 1934. From the hook of Holland to Constantinople. A Time of Gifts was first published in 1977 and we are thrilled to speak about the book today. Here comes our conversation with Ryan Floyd. Hi Ryan, and welcome to Investing by the Books podcast.
- [01:32]
B
Thanks for having me, I appreciate it.
- [01:34]
A
It's great to have you on. Where are we reaching you today?
- [01:38]
B
I am in a suburb of Boston. It's a lovely day in New England. We've had a nice fall. It's a great, great time of year and a good time in the world.
- [01:50]
A
Perfect. And to begin, can you tell our listeners about your path to becoming an investor?
- [01:55]
B
Sure. Not a typical path. So I had a little, I had little small businesses in middle and high school, like in landscaping, and I strung lacrosse sticks for my friends. I feel bad that I did that because now they're so much better than I ever did. So there was kind of an entrepreneurial spirit. I studied history in college. I was on the debating team in high school. And we kind of routed a lot of our arguments into international this and that. This is in the late 90s at the Russian default and whether Brazil would have hyperinflation or not. And they had just improved. You had all kinds of challenges. So that was a lot of fun. That got me interested in, let's say, things outside of my, I call it the I90. There's a big highway in the United States called I95. So it got me beyond that. And I live. I worked for a company, I mean, I'm moving quite quickly. Worked for a company in India and liked doing that and traveled all over the place. I must have gone to some 30 Indian cities working for a big Indian industrial company. I came back to the United States and worked for a brokerage firm at the recommendation of a few, let's say, mentor types that said, hey, you might enjoy international finance. I didn't really know anything about analyzing financial statements honestly, but what they had described seemed interesting. And as we'll talk about it, I had a kind of life, a little bit of travel and maybe deep observation as to what was going around. It worked pretty well and I really like doing that. I got my cfa, I read, I don't know, maybe a hundred books on investing and finance. Kind of self taught, I guess you could say. And I had a job as an institutional sales guy and I read a few books on salesmanship who kind of said it's really good to listen when you're a salesperson and not pitch all the time. And so I kind of used the position almost like an early podcaster to interview hedge fund managers or fund managers. And that was an amazing way to learn. It was a great way to learn, also to find out who is kind of a charlatan but also like who is doing interesting stuff. And I just got a lucky break basically in 2008 to start my own investment business. So here we are almost 20 years later, having tried to maneuver around all kinds of different things in the world. I think in investment management business it's like a cat of nine lives. Maybe it's as if I'm a hundred years old or so by that amount of time.
- [04:48]
A
Exciting indeed. And we will speak more about your investment style a bit later on. The first part of this conversation will be about the book A Time of Gifts. Can you briefly describe what A Time of Gifts is about?
- [05:03]
B
I can. Here we are. So I, I wish I had known about it a long time ago. This is A Time of Gifts by Patrick Lee Fermer. It was published by New York Review of Books. A friend, a few friends recommended this to me about a decade ago and I absolutely love this book. It is really not, it's not about, I don't think there are any numbers in here, but it is a book about an 18 year old traveling from Holland to Istanbul over about two years, not taking any cars or. I think his rule was he would only take a bus. He never took a train, but he would only take a bus. If it was like the worst possible weather. So he didn't even take buses. He was traveling over land, all only with the backpack. And I just absolutely love the book. I love the lessons of the book, the stories that he tells. And I find it oddly very helpful for thinking about investing abroad. I mean, as a way of kind of understanding the world and. And living in the world. He's a really neat character. I'm happy to tell you a little bit more about Patrick Lee Fermer, if you're curious.
- [06:21]
A
Yeah, let's go into that shortly. First, I'm curious. Do you know why it's titled A Time of Gifts?
- [06:27]
B
I don't think I do. I think, I mean, he would show up and give and receive gifts at these houses of aristocrats. So he had to have sort of letters of introduction. I mean, this is what I think it is. But he would have kind of letters of introduction, which is crazy in Hindsight. He was 18 and basically got kicked out of high school. He kind of got his. What we would call in the United States, like a ged, where he kind. He sort of just barely passed high school. I think he was kind of smoking cigarettes in London and didn't want to finish high school and just needed to get out of there because he was an unusual character, but managed to get people to write letters saying he was a reasonably upstanding guy. This would be like a LinkedIn recommendation now, I guess. But then he would go to these balls. He would often stay at these houses. But it, it. Remember, it was in the 1930s. So this is when fascism was kind of overtaking this aristocratic class, which is so fascinating to read, where often we think, at least from the United States, that fascism came from the aristocrats trying to kind of crush an underclass. But it really wasn't like that. It kind of blew away a lot of the aristocratic families. I'm not from an aristocratic. We don't even really have those in the United States. But I'm not from an aristocratic family, so I don't have any love lost of that class going away or whatever. But it's certainly an interesting story about how he maneuvers himself into these houses and is giving and receiving gifts in order to basically go to all these balls and sleep there.
- [08:13]
A
And for those who haven't read the book, how is it written and structured?
- [08:17]
B
It begins where he's telling the story of basically being in the UK and being an unusual student, where he doesn't really want to finish high school and finds it a big pain and stupid, I think, and Just doesn't finish high school. I think he takes a test and finish high school. I think in the United States. Now, this kind of. I mean, this is one thing I love about the book. This kid would probably be involved in all kinds of meetings with the school, and the parents would have all kinds of meetings. It would be kind of devastating that he didn't want to follow this traditional path. Lots and lots of kind of horrible things would be happening. But he just had his own truth that he wanted to follow. He had his own dream, his own thing that he wanted to do. Admittedly, his parents paid for the trip, so he wasn't spending his own money. They would kind of. He would sort of complain that he had to go. It wasn't American Express, but he had to go pick up money, this or that bank that would pay for his expenses. And. And that was. That was tricky. But he takes a boat to Netherlands and then is going over land. It ends up being chopped up. He barely gets to. I think it's Austria. He's there at the time, I believe, when the fascists took over. And then the remaining part of the trip is two more books. But this is actually better than the others, in my opinion. But I just love that. That Here's a guy doing a very unusual trip at a time in the United. I mean, reading it now in the United States. We're really ringing our hands about college is so expensive. What is the point? And why. Also, why bother reading anything at all if AI is taking over? And Patrick Lee Fermer kind of shows us a path. I think that's very interesting, where you're both reading. You're experiencing the world and observing the world firsthand. And you're educating yourself like, he's a teacher is not teaching him to read these classics as he's reading. And he kind of picks them out of people. He gets them from some of these families on the way talks about reading Horus. I mean, these very. Shakespeare. Shakespeare in other languages, too. I mean, it's very cool. Anyway, I'll pause there. You can tell I'm full of enthusiasm around this.
- [11:01]
A
Is there anything else you want to share about him?
- [11:05]
B
One thing that's interesting is here there are a lot of travel books. I've read a bunch of them. I kind of like to read them when I'm traveling. And often these come across as someone who just writes. Now, there's nothing wrong with just writing, but it's someone who's kind of taking this or that train or this or that car. And is writing about it and that is okay, but then the person's life is sort of just writing about that. One thing I really like about him is that later. So he's traveling in 1933-1935, but in 1940 he joins the army and basically helps rebels in Crete abduct a German fascist leader. As he's not really a war hero, but he was a decorated, maybe you could say he's a war hero, but he did really special stuff in World War II. So he wasn't just a writer. He also put those ideas into effect. So funny enough, he has excellent books about Greece. When I was traveling to Greece for work, I read some of those. I remember meeting one of the management teams when I was in town saying, you know, do people know him? He said, oh, yeah, yeah, absolutely. You know, we, he. He lived here later on in his life. He's not like a Greek patriot, but people, really, many people respect him in Greece too for having fought and later written these great books about Greek culture. So I like that he ties in, let's say, deep observation about the world, a sense of reading about the world, also communicating with other people about what's going on. So he's not just a solo hands down or head down, just reading the words for their own sake, but then is also trying to do something. I, I appreciate that. That's a pretty rare combination, I think.
- [13:08]
A
Yeah, I really like the book as well, and there are many adventures in it and it's, it's exciting to read it. Is there any specific story or a part of the book that has inspired you the most?
- [13:18]
B
Well, the writing is excellent. I was going to read it here, but it would sound like I'm reading poetry or so it would just not really work. But the writing he. In an age of AI, where people are kind of just outsourcing writing and saying, forget about it, I'll just let the AI machine write it. His writing is really interesting because it's a combination of short, punchy sentences and very long sentences. He, he says that he's sketching birds, fences, and he kind of talks about how he's writing about this. So there's a lot of observation about the world itself. Sometimes I think I know this podcast is about business, so I think for investors there's this real temptation to live in our own heads. And I'm certainly guilty of this myself. The numbers float around in our own heads. We're always second guessing ourselves. Like I often say, like, here's another book, like the Plato's Republic, the chapter on the cave. Is the thing that we're seeing really the thing in itself, or is it just a shadow of the thing in itself? And this is a very tricky topic because often for an investor, you can't really see the thing at all. You can only see observations of the thing or numbers related to the thing. So if you take that to the nth degree, you can just be paralyzed, right? Paralyzed in thought and not really go anywhere. And honestly, I think this is pretty common. And I think if investors are really honest with themselves, everybody has experienced this. So I like that. Firmer is not only observing the world, but is also moving. He's clearly moving. In the book, his body's moving, he talks about the weather. It's snowing, it's raining. Through long distances between towns, from one rural German town to another rural German town. He's both judging what he's seeing, but also observing it for its own sake. All of those are very difficult. Certainly they're difficult for investors, but they're, you know, they're just difficult in the human experience, I think.
- [15:31]
A
Can you give an example how you're using this practically as an investor?
- [15:37]
B
Oh, gosh, that's a good question. I mean, the one real. Let me give you an example. So I was in Brazil earlier this year and my flight arrived a little earlier than the meetings that I could schedule. So it was Ash Wednesday, so I went to an Ash Wednesday service. I couldn't really understand what was going on, but I speak some Spanish and the words are pretty similar. Obviously the text is Latin based. And while it was quite beautiful to experience a religious service, another language in another place, and I had some time. And so with ashes on my forehead, I traveled, walked all over Sao Paulo for many hours. This is not the same way. I'm coming in off of a flight and I'm wearing a collared shirt and I could get an Uber whenever, wherever I wanted it. But I probably walked for some two hours or something and I think it's a good way to see things. It was certainly a nice way to see Brazil. I was probably in an overly high end area. I wasn't seeing the real Brazil. And this is always a challenge to someone in my shoes if you can somehow observe what's really going on. I used to do this in different ways where I would take public transportation in a new place or I don't know, I took a train in India when I was back in India. This is a little over a year ago. It's never perfect. And of course I have a life and family in the Boston area, so I'm not going to spend six months backpacking through rural Brazil these days. I have done this kind of thing in India and in Europe, but I'm limited in that capacity. But I still kind of hold on. Having had some of these experiences in life anyway, I still hold on that I think observing things on their own take kind of saying, well, this is good or this is bad. But also this exists in its own way. Like, clearly, he's not slim. It's a funny thing where he's firmer is. I mean, he fought against the Nazis, so he's clearly anti Nazi. But as he moves through Europe, he's talking about the people he's seeing on their own. He doesn't. But he clearly doesn't like. He doesn't like what's happening. He doesn't like that the Nazis are taking over. This sounds like such a dumb thing to talk about, but actually it's kind of serious. It's like there's this huge thing that's happening, and I think, at least from the United States, a lot of people would just say, well, just avoid the whole thing. Like, why would you even bother moving through this area? Well, I don't know. There's like some bravery and courage to writing about it in a serious. A serious way, and I think in a kind of sophisticated way, showing how bad these new guys are as they're coming into power. There really are. I haven't read any other book like that, but that's. That's. It's both kind of frightening and also, I don't know, it's. It's. It's a good read. I will just recommend that it's a good read in that way.
- [18:57]
A
And as you mentioned, the book was published in 1977, but it's based on some of his diaries and of course, his memories from 1933, 1934 and so on. Something I thought about. You mentioned that he got some money from his parents, but it wasn't that much money. I mean, he had very little money to live on, and he didn't know where to spend the next night. He was 18, 19 years old. But I still feel like throughout the book he's very optimistic. And in one of our previous episodes, number 41, we discussed the book Deep Survival. Maybe you read this one by Lawrence Gonzalez.
- [19:32]
B
I haven't read that, no.
- [19:33]
A
It's a great one. If you haven't read it. It's about who survives and who doesn't. And we talked to Jake Taylor about this one and one conclusion from the book and the episode we had was that survivors often have a very positive mental attitude. So I must ask you, what is your take on how optimism and pessimism affects you in life? But also as an investor, I've said,
- [19:55]
B
I mean, just, just switching to investing a bit and less about firmer I really like the consulting company called analytics, and they have kind of millions of trades and they've shown through the research that the best investors produce alpha in their investments some 60% of the time. But so it's a little bit better than a good, really great baseball player, but not much better. And they argue so you have to be ready to be wrong 40% of the time, basically. That is very challenging. I think if you're in lots of fields, that isn't really the case. If you're I play the piano on the side for fun. If you're a professional piano player, if you're working really hard and practicing well, you're not failing 40% of the time. Now, maybe your piece is not perfect, but generally if you're practicing well, your craft gets better and you don't have to get used to being wrong and getting kicked in the face a lot. In our field, there is really no other way. And it is what it is. I think people deal with this in different ways. Some people say I often will get this kind of email from a friend when there's some downdraft in some part of the market where someone will say, like, what's the best stoic book? And I read a bunch of these guys and actually I'm not a huge fan of stoicism because I just don't think it's really real. I think, like, Seneca, I think, was one of the richest guys in Rome. Marcus Aurelius was the emperor. So are you really going to take advice about how tough life can be sometimes from the emperor and from the richest guy in town? Like, probably not. I don't know. It just doesn't seem very realistic. So those guys generally argue, kind of steel yourself against everything I'm paraphrasing. And just don't let it affect you. Just push it out, don't let it affect you and move on. Honestly, I don't really think that's possible. I don't think it's possible for anyone. I have found. I like this line. Patrick o', Shaughnessy, who said this in one of his podcasts, action is information, and there's something to that. And I think bringing it back to the book, you have to do something. I don't know what it is. It's really not trading, but it might be doing extra homework. It's. It might be taking a walk. It might be talking to someone that you haven't talked to in a while. It might be talking to your parents, it might be talking to old friends. It's something. But there, I think the stoic tendency just to put your head down and pretend nothing is having an impact on you. I think, particularly for men in particular, it doesn't usually go in different directions. I don't think it leads you in the right path. I do think some bias towards action. I don't really mean trading action, but some bias towards doing something is good. Now, there is this whole Buffet Munger philosophy where you just sit around all the time, and then occasionally you have these special moments of revelation, and then that's when you investors. I'm exaggerating it, but I don't think that's actually the way those guys operate. I think that their men have been. I mean, Munger's gone now, but they're men of action, too, who read a lot. I think someone said Buffett's on the phone with his trader like a third of the day or something like this, so. Or was, I think, this idea that you just sit around and steal yourself against the markets, and maybe you're just reading Value Line. I don't think that's real. I don't think that's realistic. And I think that reading about. I think reading Patrick Lee Fermer is like a pretty good antidote, whether it's a metaphor or whether it's reality. Like, keep walking. Actually literally take a walk, but also keep walking and observe what's around you for its own sake. It's easier said than done, but I found that that is pretty helpful.
- [24:11]
A
Yeah, I think you have a good point there. And what I'm also starting to think about is, I mean, you speak about investors sitting, drinking coffee and reading. And that's one part of investors maybe not being so active, but they're doing a lot. Maybe if they're not out there so much, but they're still doing something. The other part is academia, where it's kind of like more theoretical, and they are having their opinions about how. How the world works, but they are not actually out in the world. And I think what you're alluding to is that this book. He's really out there. He's doing stuff. He's in the real world. And that's what we have to be as investors as well.
- [24:47]
B
I like that, too. I have friends who are academics, so I don't want to badmouth academics or really excellent writers who just write for their own sake. But I like reading. I like reading something, talking about it, and then doing something about that opinion. Okay, fine. It's just like writing to a trader, baby, which isn't really doing. So it's, you know, I'm not leading a revolution in. In rural creed, but I do like. I do like something in my job where I have to make a call on something. Sometimes it's a call not to do something. Like, no, we're not going to invest in this or that thing. Or it's an active decision. Yes, I'm going to make this new investment or I'm going to continue with this investment that I've had. I like that. I like. I don't know. Maybe it's a personality thing. I think for some people that is terrifying. And it's much easier to make pronouncements. I often think about columnists that have been colonists for 30 years. Often they'll make pronouncements like, if this and this happens, this will happen. Well, like, no one ever really goes back to say, like, were you right or not? Or if we would have put money behind it, how would that have worked? But I think that the process of having some skin in the game and having to make a call on it, certainly for me, it makes me a little more humble about, let's call it the sense of truth. What is really right, what is not right, the thing that you know to be right, whatever that is, you get more confident in that little, little bit. It's not as big as this. It might be like this, but then all this other stuff, if other people have different opinions, I don't really care at all what their backgrounds are. I respect that because, my gosh, I can't be right all the time.
- [26:47]
A
I think you're right there. But also when it comes to having skin in the game, that means that you can lose something. And while it's a time of gifts and he's receiving a lot of things in the book, Patrick, at one point he loses basically everything he has. And I have just been traveling myself through Europe for a couple of weeks, and unfortunately, I also lost a few things on the way. Nothing irreplaceable, but it's still really frustrating. And I think as investors, it's impossible to avoid losses as well. How are you dealing with that?
- [27:23]
B
It's a nice point. He loses everything, including his journal. He later recovers this part of the journal and he, I mean, to read it, you're like, oh, my goodness, what an 18 year old this must have been. To write like this, I can only imagine, really. But to have lost that, it must have been devastating. Now there's this idea that, like, every book is fiction, even nonfiction, and you can read it into this book. That maybe the book's not really about a man or a boy walking across Europe. It's really about just life. Life being a journey for its own sake. And yeah, you might lose your back, but you might lose everything you have. You might lose your backpack, you might lose your precious journal. Now that sounds really silly. Like, oh, ho hum, your journal. It's nothing but, like, to this guy. And I think as you get into reading it and you're so excited for him, you realize how horrible and devastating that is. Honestly, if you're around in this industry long enough, you're going to have some big losers and you have to just get on with it. I think you have to go home to your family and still do the dishes and still, you know, you can't be crying your head into a pillow, I mean, like, while other people are doing the dishes. Like, that just doesn't really work. So, yeah, this is, this is very real. I, I identified with that when he lost his backpack. I don't lose that many things now, but as a kid, I used to lose things a lot. And it was, I don't know, I stopped doing it as an adolescent. But of course I have this or that memory of losing the thing. I'm like, I can just remember. Oh, my goodness, that would have been devastating. I, I can, I can imagine what that would have been like and just really terrible.
- [29:16]
A
One of our previous guests on the podcast, Avner Mandelman, I asked him this question, how he handles the pain of losses. And I remember he said, rub your wounds with money. I think he was joking, but it's not always the case that you can do that. I think what proves out to happen with Patrick is, I mean, we're kind of spoiling the book here for some. But he loses, for example, his passport, and that's kind of irreplaceable and some of the other things as well. And no matter how much money he would have, it would not be possible to buy back that diary, for example. And in many instances, he needs to rely on the kindness of strangers, which we know that Buffett has many times said that, something he wants to avoid. But Patrick is forced to do this when there's no other help to get.
- [30:08]
B
Yeah, that's right. I really admire that he's so comfortable walking up to strangers to talk to them. I had a friend say he's like the ultimate schmoozer. Yeah, Gather he was a pretty good looking guy and so he would kind of flatter, you know, you would kind of get invited into these houses and balls and things like this. But I wanted to get back to what you said. I mean it's funny what that rub your flutes with money. I don't, I mean I've certainly. I don't, I don't know this guy, but I wouldn't use that. How do you handle the pain that comes in life or I think just for me kind of being around, I like kind of taking a break sometimes. Reading, taking a walk, playing sports. Sports with friends. I often like being with family members who really don't care what I do for a living in any capacity because they don't care if some stock went up or went down or whether this manager said he was going to do this and then didn't do that or something like that on an investor call. I find that's very refreshing. It's kind of nice. You know, it's funny reading the biography of the Rothschilds that Neil Ferguson wrote. They kept their professional lives and their personal lives completely entwined and not just in the very beginning, but multiple generations did. I can't really. That is something that I would not really want. I. I like kind of having some, some space or mental space that's somewhat separate. I'm. My mind is still wandering about this or that thing, whether I should be investing more in this or less in that. But I like keeping those worlds somewhat separate. It kind of makes it easier when things are not going perfectly, I guess. But I don't love the, the modern encouragement of like endless discussion of those things that have gone well. I think you have to get on with life. It's like it. I don't know two thirds of way through with Top Gun. I never thought I would be using Top Gun, the first one as a air part of encouragement. But there's this line from the teacher where he tells Tom Cruise, you just. He has to get back up in the air. He has to get flying again even though this horrible thing happened. And I think there's a lot to that. It depends on your constitution, but I think there's. I think there's a lot to that. I don't know what that would be called with your wounds. Maybe Wounds heal better when the body's moving or something like this.
- [32:54]
A
Yeah. And to tie that back to the book, I think Patrick is really good. In the darkest of hours, he can still put on that smile and really try and be. I think it ties back to also what you said in the beginning. You had this entrepreneurial spirit in the early days. Because he also shows this. He's able to be quite creative and start sketching people to get money and stuff. Where did you get that kind of entrepreneurial spirit from?
- [33:20]
B
I also liked reading about these things. Just, oh, my gosh, here's a guy that did something totally different. Where did I get this? I'm not sure. My parents said, if you want to get Nintendo. I think I was in first grade. My sister and I, of course, didn't have a job. We had to pay for it ourselves. I don't know where we came up with this idea, but we said we would get recycling for aluminum cans. And look, commodities prices in the 80s were not very high, so we collected aluminum cans to pay for Nintendo. Maybe I shouldn't tell my kids this because I actually don't love video games now, but maybe, I don't know. She and I did this. This is like the very beginning. And then I had a kind of hunger, I guess. I like doing my own thing. I think, like many investors in my field, I always had some sort of inner voice of wanting to do something on my own. I don't mean like starting my own business, but I think just an inner voice of following a different path or just following a path that maybe was parallel to what everyone else was doing or maybe it was perpendicular to what everyone else was doing. Here I am wearing a blue oxford shirt. So it's not as if I have tattoos all over my body and I'm doing some crazy wild ayahuasca or whatever, you know, this countercultural thing. So I'm living a fairly kind of normal life. But I always liked doing things that were different. I don't really know why. I have multiple kids and I see some sort of like this. It almost seems like it's an inborn thing. It doesn't make it easy as a parent, I think, because some people just don't really want to do what everybody else wants to do. And that is a little challenging, honestly. Like, I think maybe some of my teachers, I really identified with him where he didn't really want to do all of the same homework. The line from his high school. It's on Wikipedia, is that he was a dangerous mixture of Sophistication and recklessness. I was never really that reckless, nor was I that sophisticated, but I appreciated that line. I liked this little landscaping business I had. I, I like that it gave me some freedom. And in college a lot of people are doing the same kind of thing. Often I have young people that kind of ask for advice and it seemed like everyone was doing this exact pre consulting or pre investment banking world when there's really nothing wrong with that. But I just didn't want to do what everybody else was doing or pre law school. It just seemed like if you want to have a different life, you can't do what everybody else is doing.
- [36:15]
A
Now you're onto something there because you're going a different path and you have created your own business, Barca Capital, where you are the founder and the portfolio manager. Can you tell us a bit more about the firm?
- [36:28]
B
Sure. So we started in 2008 and it's an investment advisor. We're regulated by the SEC. I'm the portfolio manager, I run the business. We have a handful of investors that have invested into this and the gist is to be generally speaking long term investors investing primarily in emerging and frontier markets. But we own stuff in other markets too. Legally we have the right to invest in really anything. But generally speaking I like to invest mostly in equities and in things that for some reason, let's say the broad investing community doesn't generally own or doesn't really understand or hasn't really focused on. So this can take lots of different shapes. But it's kind of better to talk about what we don't do. I don't just buy the index or they have nothing against owning the index. Certainly there's a place for that, but that's just not what we do. So there's no closet index hugging of. Sometimes you'll meet these managers that say well this is 4% in the index and we're bullish on it. So it's a 5% position and this is 4% in the index and we're bearish. So it's a 2% position or something like that. Like maybe there's a world where people can do that, but that's not, that's not generally what I like to do. So we've owned things in lots of different parts of the world. We had many investments in Nigeria at one point. We had many investments in Sri Lanka during the civil war. My wife and I went there in the peak of their Civil War in 2008 when we started the business, traveled into the Interiors. They have great fondness for the people of Sri Lanka and other types of things. So we'll kind of go, I guess I don't know where. It seems like there are opportunities. I would say I'd rather not just talk about things that I like or like what is exciting now because I'm always nervous about compliancy stuff. Of course, this is for informational purposes only and not an offer to buy or sell anything. But I'd say it's fun and enjoyable and meaningful to provide capital to different parts of the world, I think, that are doing good things, or people that are managing companies, I think, that are providing good services. So that's not always perfect. Where of course, we could own something in a country and there are parts of every country, including my own, that is not perfect, or there are policies happening that you don't love and sometimes that's not enjoyable. But it is what it is. It's part of this business that nothing's perfect at any given time. But I would say I derive meaning in life of doing this. And it's quite fun to look at things in different parts of the world and have to make some call on it. It stinks when it doesn't go right. But when it goes right, we can, I guess, discuss this or that with different managers and be a shareholder in this or that company. That's good.
- [39:37]
A
Are there any countries or regions where you don't invest?
- [39:41]
B
Good question. I mean, we follow all rules and regulations and we're regulated by the sec, so of course we follow to a T. I think the United States has slightly tighter rules than other places. It depends on the issue, but slightly tighter rules. So when in doubt, we follow the more rigorous rule. But of course, our compliance department tries to do everything the very best that we can. And. I think there's just like an ick factor, like, I don't know, that just makes. I don't really like what's happening there or I don't like the way what's going on there. It doesn't seem right. But really the math is something like, is this place or this sector or is this industry right now not very well loved for whatever they're doing? And maybe can we see something that's good that the other. That other people in the world maybe don't see? Some of that honestly comes from reading old books and seeing like, oh, I can get some sense of what's going on here in greater historical context rather than just what the headlines are in the newspaper today. And then make A call in a broader way, but the math has to work in some sense of valuation where the free cash flow yield and the growth above inflation has to be. I'm not going to put a number here, but it has to be ample. It has to be a good return that compensates you depending on the country for the risk that you're taking. So it sounds ridiculous, but a lot of risky countries just don't compensate you for the risk that you're taking. Believe it or not, I think there's kind of a common viewpoint that everyone just focuses on the fang or something like that. And like everything else in the world is insanely cheap. And if you just look at this or that country that seems risky, well my gosh, it, it is insanely cheap. But actually that's not the case, which is kind of weird. There's home bias everywhere and often in different countries there's capital that's stuck like pension funds can't leave this or that country. So you might have a country that's actually not doing so well where things aren't that cheap. And this happens a lot. I mean it's harder than you would think to find something where there's such a mismatch of opportunity.
- [42:17]
A
And when it comes to the risk taking, how do you think about limitations when it comes to the concentration in the portfolio?
- [42:24]
B
It's a good question. So I do have a good amount of limitations like business model risk or there's a lot of bad company risk. So like if you want to buy a low price to book bank, there are an endless number of low price to book banks. If you want to buy a low price to book manufacturing company, you could probably find many thousands of these things. So these are often value traps. I mean, I don't want to name any names, but there are just an endless number of value traps. Often people say like oh my gosh, you must face fraud outside of America, all over the place. Well no, that actually isn't the case because often the bad companies declare themselves where these low price to book banks have a return on equity, half of their cost of equity, so they deserve to trade at low multiples. Or there are so many kind of perpetually loss making companies that are still listed. It's a weird thing, it's that the cost to delist it is impossible or you're not allowed to do take privates or there's no local private equity industry. There are poison pill regulations in lots of different countries. So the you'd be surprised. You can kind of avoid a lot of horrible companies by avoiding horrible companies. I know that sounds weird. What is challenging is false positives where there's a company that looks good, that's very profitable, that's growing, and people don't realize it or whatever. But then that attracts competition. So this is just Investor 101 or Microeconomics 101. That if you're doing well and your margins are high and you're growing, well, maybe everything is already in the price and maybe you're, I don't know, not actually that cheap. So an example would be something like, I'm not naming names, but like it's 9pe on record margin. So there are a lot of these companies, for whatever reason, maybe they're not growing that rapidly, but they have insanely high margins that are higher than everywhere else in the world. And you'd say, oh, wow, the Dividend yield is 8%. It's 9 PE. This seems amazing. But the margins are triple what they are in other countries that are more competitive. Well, then you're short this binary option, basically, which is that a competitor comes in and decides to compete in this very obscure industry. And now suddenly that 9Pe, the Pro, the E, you know, the e of the PE goes down by half. And now it's a 19p stock, which is. Shouldn't be, and the stock goes down a lot. So this is. This is way harder in terms of risk, is avoiding false positives. There are false negatives where the ugly company turns around. But it's a funny thing. I mean, if you take a list of this or that country that has like hundreds of stocks list, there are just so many ugly companies. I've often said it's like Eleanor Rigby, the Beatles song. Like all of the ugly companies, where do they all come from? It's a weird scenario how many of these things there are.
- [45:54]
A
It's good that you can look all over the world for the gems. How much are you traveling?
- [46:01]
B
It is fun to be able to look all over the world. So I've been taking something like three to five trips a year for many years, which actually feels pretty ample. And I'm on the phone very frequently with lots of different people. We also. And also we have an analyst that travels a heck of a lot too. So now, having done this for a long time, I don't have a Rolodex, but the Rolodex is very deep. And it's. It's nice to be able to get on the phone with folks and have built relationships with people where we can Hear when something good is happening or not good is happening. Believe it or not, it's harder to dig into the investor call. It's not always very well publicized. So just to be able to get on it and then zoom in quite quickly, having done this for some 20 years, it's nice. I don't know, it feels good. Sometimes there are local things that we miss and you say, oh, man, I should have known that. That, honestly, is not the bigger challenge. The bigger challenge often is this false positive dynamic. I mean, of course, you know, full disclosure, there are all kinds of risks that happen. And this is not investment advice. And make your own decisions. And I make a zillion mistakes just like everybody else. So I don't want to make. Make it seem like everything I'm doing is incredible.
- [47:29]
A
But coming in as a US Investor to different geographies, I'm curious how this has changed over the last 20 years or so since you started.
- [47:39]
B
It's a good question. It hasn't really changed. And this is kind of a surprise. I've of course, been running the fund with many different regimes, both in the countries themselves and in my own country. There have been trends where I think the investment public broadly thought like every country would be a liberal democracy within 10 years, which I always thought was dumb. I have generally moved. Honestly, it's kind of like Patrick Lee Fermer. I also like Herodotus's history, where you do two things at the same time, which is one, you have an absolute scale of, let's call it quality. And that is in your mind, and it's kind of fashioned over time. And quality involves things like honesty, integrity, Sense of rule of law, ease of moving around and safety. And also the quality of the business. How profitable can this business go? Where can this company go? And of course, it's not perfect all the time. So that's like one axis, then the other axis is really just who's this human that's across the table? And this is a really fun thing. Having traveled to, I don't know, scores of countries, I don't know how many, but the majority of the bigger countries of the world.
- [49:08]
A
And
- [49:10]
B
human beings are really human beings. And the people look often very different and can talk differently. I'm lucky I speak different languages, but the meanings are almost always in English. So there's a kind of human. Nassim Taleb writes about this in his books. Where there's some language of business where you're talking about business, but there's a certain respect. Often the discussions will Talk about they have a family, I have a family. Well, that's. Everybody has some sort of family. I travel for work, they travel for work. They have responsibilities. I have responsibilities. They look different. And that's all good, and that's okay. I think there's a kind of humility in that. Herodotus has this line. He's quoting one of the Persian. I can't remember exactly who. Custom is king of all. And I think this is the other axis. There's a universal quality of quality. Let's call it, or honesty. And then custom is also king. And custom determines to some extent what we eat, what we drink, what we wear. And that is what Patrick Lee Fermer observed and what makes his book so good. But that is also what makes the world fun and interesting and also, I think, honestly, like investing outside the United States, fun and interesting.
- [50:31]
A
And if we look ahead a couple of years or decades. What are your ambitions for Parquet Capital?
- [50:39]
B
Just continue to find investments that I can own for a while that are good, and I think cheap or reasonable, you know, reasonably cheap, that we can own for a while that the rest of the world doesn't love right now and just keep on doing that. There's this movie I really like called Rushmore, and he has. There's this line where Bill Murray asks Max, what's the secret, Max? And he says, I just want to keep going to Rushmore, his high school, which is a joke, obviously. Can't go to high school forever. And I think there is this idea within Patrick Lee Fermer where you get the sense that he kind of wants to do this forever. You could say, on the one hand, it's like a Peter Pan. You don't want to grow up on the one hand. On the other hand, there is this element, I think they're of finding something where you can keep learning, keep exploring, and keep trying to get better at that. So I don't know. That's kind of it, I guess. I don't really have ambitions like Aum has to be this or that. Employees have to be this or that. I think if there's an ambition, it's more like be able to survive and thrive in challenging times so you can enjoy and appreciate the. The better times. And it's easier said than done. But we've kind of tried to structure things at Barca Capital and the fund. We manage to be able to do that.
- [52:06]
A
It sounds like you found the thing to do and it's what you love, and it's clear that you also. I Mean, you did a couple of movie references here, but I know you love to read as well. And now we have discussed the time of gifts, but you probably have some other books we or people that have shaped you.
- [52:24]
B
I do. You know, I do like investing books. I mean, there's nothing wrong with it, but everybody kind of makes the same list, right? So, like, you have this. People just list the same books. And then if they want to go a level beyond, everybody says, like, oh, you should read Malcolm Gladwell or Daniel Kahneman or something. So my kind of hot take is I think investors and maybe professionals would be rewarded for going a step beyond that. And this is my. Maybe it sounds snobby saying this, but Malcolm Gladwell sort of started this new genre of basically like reading social science reports and then breaking it down for normal people. And I like his books too. They're kind of like a back massager or something for. I don't know. It's like, feels kind of good. It's not very challenging. You get a couple insights here or there. So anyway, so my list would be like a stretch list. I've mentioned Herodotus's histories. I think this is a pretty good book for trying to understand the world. It's about the Persian invasion. But he basically describes a kind of structure for history that doesn't. This is kind of how we think about investing. The cause of the thing is not just what's happened this year or to last year, but if you're going to make a DCF that has a history, stretch it back as far as you can. So we end up paying a lot of money to get annual reports back 10, 20, 30 years. Because you want to know, how did these guys behave during this or that scenario? So I think Karate's history is pretty good. I like Samuel Huntington's Political Order and Changing Societies, which came out in the 70s. And there really aren't very many good books about investing abroad, but I think that's a pretty good one. We could even do a whole separate podcast about that someday if you want. But the gist is something like, there are a lot of counterintuitive things about countries growing up that you wouldn't expect. For example, an easy one is which Tocqueville writes about. Maybe Tocqueville's books, too. But another easy one would be something like economic growth often leads to instability. So when incomes are rising and economic growth is rising, you have increased expectations. Some people call it like the Tocqueville effect. So he said, like the economy before the French Revolution actually was pretty good. People think it was horrible, but actually it was pretty good. The incomes were rising, but the regime was not able to fulfill what people wanted at all. So this kind of idea, like, well, it's great. This economy has been growing by 5% a year for 30 years, or whatever. You think to yourself, oh, what do people want now that they couldn't have afforded 20 years ago that the government can't provide? And that can lead to pretty nasty things, heads getting chopped off and stuff. You know, we're not talking about just people having signs. Oh, no, this is not good. We're talking about buildings being burned and heads being chopped off. So that's a pretty good book. I mentioned Alexis de Tocqueville's Democracy in America, which is pretty good. Also the. I don't know how to pronounce it. It's in French, Ancien Regime, which is a similar spirit. I'd like that very much. And I would kind of recommend, these days, the book Albion Seed. You know, there are a lot of questions about the United States. You know, the United States is a very complicated place, and I think what gets broadcast on BBC and other news reports makes it very, very difficult to understand. This is a book that came out in the 80s and I think does a reasonable job of describing the different. Let's call it factions or different groups in the United States and maybe some of the intellectual history of those different groups and how they're very, very different. And it helps put current events into proper context. So I'm reading the books from Robert Caro. I mean, I don't know I'd recommend those, but they're like a thousand pages long or something like this. But his books are good, too. I could go on for a long time. So sorry, I can.
- [56:50]
A
Great advice. Thank you for those. Would you like to write any book yourself?
- [56:55]
B
It's a good question. When I was in India, I wrote a lot and I thought to myself, like, oh, this will be a travel book. And then I had to apply for jobs and it went away. And then later on I went back and read it and basically thought, this is horrible. This is a terrible book. Like, no one wants to read this. The observations were so stupid. It was just about, like, what cocktail I ordered at the bar or something like this. Like, it was just very dumb. I think, having said that, maybe. Now, the funny thing is that Patrick Lee Fermer wrote it late. He didn't write it when he was 18. And so there might be something like, I don't know, what was that time in my own life written later from journals that I wrote or other types of things. So maybe, maybe, maybe, but not these days. I do have a little substack which it's called Detached Notes, which is not really about writing a book, but it does scratch an itch of writing that is kind of fun. I write Investor for investor letter for LPs too, so that's nice. I've always enjoyed writing. I'm certainly not as good of a writer as Firmer is, but that's okay.
- [58:13]
A
Highly recommend that substack Ryan Floyd thank you so much for coming on Investing by the Books podcast to share your thoughts on.
- [58:19]
B
Thanks very much for having me. It was a really nice conversation. I appreciate it.
- [58:22]
A
Yeah, thank you so much. Do you have something more you want to add here before we finish up?
- [58:26]
B
I don't. If someone has good book recommendations, hit me up@barkacapital.com or on LinkedIn. I am there and I'm always looking for good book recommendations. To my wife's dismay, they keep on filling up bookshelves. But it's okay. Hopefully I'll live a long life and I'll eventually get to them. So I always like good book recommendations.
- [58:48]
A
Perfect. Thank you so much for coming on for sure. Thank you for listening to Investing by the Books, a podcast by Red Eye. Follow us on Twitter ibredi and email us at IB Podcast to improve. We'd love to hear your feedback, so please rate and review us. Notice that the content in this podcast is not and shall not be construed as investment advice. This information is meant to be informative and for general purposes only. For full disclaimer, visit Redeye S E I'm your host Eddie Pomyan, and until next time, I sincerely wish you the best of luck on your journey through life and investing.